Goldman, by contrast, remains much more heavily reliant on bond trading, stock underwriting, and other traditional investment banking businesses to drive its bottom line. Investors seem to be siding with Goldman Sachs now — its shares trade at about 1.15 times their book value, an accounting measure of their net value, while Morgan Stanley's trade at about their book value.
In addition to fee income, banking products offer more deposit funding for Morgan Stanley, which regulators view positively. During a financial crisis depositors are less likely than corporate bond investors and other lenders to flee when trouble is brewing in markets or at a bank. When rates rise, deposit funding is often cheaper than other forms of borrowing.
Morgan Stanley now has around $139 billion of deposits in its bank unit and is aiming to get up to $200 billion in the next several years. To help its effort, it has assembled a team of card and payment executives, many of who led similar businesses at Merrill Lynch.
Tom Duffy, who heads banking services within wealth management, says his product development team has more than doubled to around 34 since he joined the bank in 2011. Morgan Stanley's overall deposits, at around $147 billion, fund a much smaller portion of its balance sheet than most other banks — its deposits equal about 18 percent of assets, compared with more than 50 percent for both JPMorgan Chase and Bank of America. Winning more client assets may not be easy, analysts noted.
"It's a lofty goal to be the primary bank for every one of their wealth management clients," said Glenn Schorr, an analyst with Evercore ISI. But even if the bank wins just a sliver of business from customers, Morgan Stanley will be better off, he said.
Some financial advisers also question whether they will be able to push their clients, who may prefer to conduct their everyday banking at a traditional bank branch, into changing their daily behavior.
"Five or six years ago, the whole banking effort at Morgan Stanley was very embryonic — we were playing catch up in the space," said Greg Fleming, Morgan Stanley's president of wealth management. "We've been gearing up for this over the last few years and building out our technology, which is why this is more of a 2016 initiative."
The technology Fleming referred to includes on-line banking and mobile banking software.
Boosting retail banking products will help to expand wealth management's profit margins. Last quarter, the pre-tax margin in the wealth business rose to 23 percent, at the lower end of the bank's long-term goals, and in line with Bank of America's wealth unit over the same period.